Growth continues to slow at XM Satellite Radio (NASDAQ:XMSR). Thankfully, the bloody red ink is starting to clot, too. Revenue rose 27% to $264.1 million for the quarter ended in March. Net loss narrowed by 18%, though a deficit of $122.4 million indicates that the clotting process is going to take a long time -- it'll be awhile before Jimmy hops on a skateboard with clean knees.

To be fair, roughly half of the bottom-line improvement can be tied to the company slashing its marketing overhead. XM had to spend a lot of money last year to drown out the media circus surrounding Howard Stern's arrival at Sirius (NASDAQ:SIRI).

However, sometimes you get what you pay for when it comes to marketing. If XM disappointed investors by closing out the first quarter of 2006 with just 569,000 more subscribers, can you imagine how shareholders feel now that it landed just half as many net new subscribers -- 285,000 -- on an even larger base this time around?

Can you ear me now?
The search for new ears still isn't cheap. XM expects to spend an average of $111 to $114 this year on each gross addition. That sounds reasonable, right? These folks are paying an average of $10.15 a month -- with pocket change above that collected in ad revenue from sponsors -- for a service with limited variable overhead. However, that's the gross figure. You have to chip away at a lot of granite to get at the eventual sculpture here.

As XM grows and ages, churn keeps nibbling away at older members. Yes, General Motors (NYSE:GM) has sold 5 million cars with XM receivers, but a lot of those are now inactive dashboard decorations. The churn rate has held constant at 1.8% monthly, yet XM still had to go out and snag 868,067 gross additions to grow its subscriber count by 285,000 to hit 7.9 million total subscribers this past quarter. My, that's a lot of chipped granite.

On the upside -- and there is an upside -- most of the bad news was expected and priced into the stock. The company is sticking to its earlier guidance that calls for positive cash flow for all of 2008 and closing out 2007 with 9.0 million to 9.2 million total subscribers. After backpedaling over the past year, it's good to see XM hold its ground for a change. The company also continues to nurture its relationship with top automakers like Honda, Toyota, GM, Infiniti, and Hyundai. Even if many of these factory-installed receivers will eventually go unused, they're XM's best shot at a captive commuting audience.

It won't get any easier in the future. More cars are adding jacks for Apple (NASDAQ:AAPL) iPods, and HD radios will broaden the choices on terrestrial radio. Satrad fanboys can argue that the XM or Sirius experience is more about discovering new music than the more passive act of enjoying owned music through an iPod, but they're missing the point. Commutes are limited. If I'm spending time hearing my digital music collection on my iPod, taking my Napster (NASDAQ:NAPS) To-Go subscription on the road, or plugging Audible (NASDAQ:ADBL) audio books into my Garmin (NASDAQ:GRMN) car-docked Global Positioning System, I won't have as much time to hear satellite radio. A $13-a-month music subscription becomes that much less attractive as a value proposition. Pesky prices at the gas pump can't be helping, either.

The XM-rated horror show
No, it hasn't been easy for XM as it barrels toward a potential merger with Sirius. It's also been a tough stock to believe in. I recommended it to Rule Breakers subscribers in the fall of 2005. It tanked before being mercifully tagged as a sell recommendation 13 months later. At least that part went well, as the stock has shed nearly a quarter of its value since being bumped off the scorecard back in November.

Satellite radio was a disruptive technology. There may be a little sizzle if polarizing celebrities like Rosie O'Donnell and Don Imus set up camp on satellite radio, but the migration process is going both ways these days.

If XM and Sirius are allowed to merge, the realized savings will make the sector more attractive. The clotting process will speed up like it does for an injured Lost castaway. However, investors will have to tweak their expectations. Instead of a disruptor, satellite radio is now being cheered on as a survivor. It sounds good in theory, but the rebirth of a pair of turnaround situations is also the death of a pair of growth stocks.

Rest in pieces, satrad.

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Longtime Fool contributor Rick Munarriz is a Sirius and XM subscriber. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. He does not own shares in any of the companies in this story. The Fool has a disclosure policy.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.